North America ABS Issue: Fortress’ US$2.04bn triple lease securitisation

IFR Awards 2020
3 min read
Richard Leong

Amazing delivery

Fortress Investment Group broke new ground with a US$2bn triple net lease securitisation secured against Amazon logistics properties, creating an attractive opportunity for ABS investors to gain exposure to the retail giant and producing low-cost funding for the investment firm’s logistics venture.

Traditional triple net lease ABS feature pools of leases with various types of investment-grade tenants in a bid to diversify risk.

Fortress and its bankers revamped this format and structured the deal around Amazon as a single tenant, capitalising on soaring demand for credit exposure to the retailer and logistics properties during the pandemic.

The deal – via CF Hippolyta Issuer LLC 2020-1 – drew in excess of US$10bn of demand from more than 70 investors.

The four-part deal was the biggest triple lease deal ever and appealed to traditional ABS and cross-over credit investors.

“This is an innovative transaction where we took established assets and established markets and we were able to apply unique technology and a unique approach to get a much better outcome for our clients,” said Steven Moffitt, a managing director at Goldman Sachs, which was the deal’s sole structurer and bookrunner.

The strength of Amazon’s credit profile allowed Fortress to apply more leverage, at 90%, versus the 70% seen in a typical triple net lease ABS.

Amazon being the sole tenant of the deal’s 11 warehouses and distribution centres represents considerable concentration risk, but that was offset by the company’s investment-grade status – A2/AA–/A+. The deal’s appeal was bolstered by the retailer’s surging sales as consumers stayed away from malls and bricks-and-mortar stores in favour of shopping on their computers and mobiles during the pandemic, driving increased demand for warehouse and logistics assets.

Due to intense demand, spreads on the notes came 35bp–55bp inside initial price talk, resulting in all-in duration weighted-average coupon of 1.87%.

The largest tranche, the US$1.365bn A-1 with a weighted average life of 4.78 years, cleared at a spread of 140bp over swaps, ratcheting well inside IPTs of 175bp–200bp.

Given the tremendous reception for this structure, more supply is expected from other assets occupied by investment-grade companies, especially from tech firms that have scaled up their real-estate activity in step with demand for their services.

“This sets the benchmark for financing assets in the distribution centre space, but also data centre and other new infrastructure assets such as cell towers and fibre,” said Katrina Niehaus, a managing director at Goldman.

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